DHS PROPOSED CHANGES TO THE EB-5 PROGRAM

DHS PROPOSED CHANGES TO THE EB-5 PROGRAM

Released May 1, 2015 is a letter from DHS Secretary Jeh Johnson dated April 27, 2015 to Senate Judiciary Committee Chairman Charles Grassley about the extension of the regional center EB-5 statute, which is set to expire September 30. He suggested a number of statutory changes, most notably:

• Increase the EB-5 minimum investment amount in TEAs and other areas. He says USCIS will do this administratively, but a statutory change would be beneficial. No amount is stated.
• Eliminate TEA gerrymandering and limit TEAs to a certain number of contiguous census tracts.
• Authorize USCIS to fine and temporarily suspend regional centers.

USCIS STAKEHOLDER CALL

USCIS held an EB-5 stakeholder call on April 22, 2015. USCIS announced important new policies regarding the lawful source of investors’ funds:

• Borrowed funds will only be considered up to the value of an investor’s collateral for the loan. Documentation of the value of the collateral will presumably be required. USCIS also seems to be applying rarely used rules that permit debt (a note) to be invested in the EB-5 project on investments of an asset (cash) derived from a loan. This new policy mirrors the regulations for investing debt. This raises a question of whether the new policy is illegal rule-making without proper notice and comment under The Administrative Procedure Act (APA). Many on the call objected to this new rule, but USCIS refused to discuss it.
• If the investor borrowed funds for a purpose other than an EB-5 investment, and the purpose is stated in the loan documents, (i.e. to remodel a house, or for construction materials for a particular project in China), and the borrowed funds are then used for an EB-5 investment, the funds will not be viewed as from a lawful source, but instead loan fraud. In the past, we have seen many such cases approved. We will be researching this matter.